By Mark Glennon*

We’ve written here often that Illinois can’t count on a progressive income tax to solve much, if anything, in its fiscal crisis. That’s why many proponents, including gubernatorial candidate J.B. Pritzker, won’t get specific about what they spin as the primary solution to our problems, which we wrote about recently here and in Crain’s.

Well, the union-friendly Center for Tax and Budget Accountability just made the case for us.

They released a specific proposal and concluded it would raise just $2 billion in additional revenue. What that really does is prove the futility of thinking tax increases are a way out of our mess.

For some perspective on why $2 billion wouldn’t go far, consider just the additional funding required to meet “adequacy” under the new school funding formula. That alone will consume that $2 billion per year within six years.

Two billion dollars wouldn’t even cover the shortfall in unpaid interest that effectively accrues on pensions, much less begin to reduce their unfunded liability.

What about the rest of the deficit we’ve been running, which has averaged $11.7 billion over the last ten years, according to the state’s own financial statements?

How about something from the state to relieve suicidal property taxes so many municipalities are levying? Forget it.

And what about gubernatorial candidate J.B Pritzker’s list of promised goodies that so many progressives want? The CTBA’s proposal isn’t Pritzker’s. He hasn’t offered a specific one. But the CTBA’s proposal exposes what happens when you get specific

Pritzker’s promises include universal health care, early childhood education and better funding for schools. Pritzker hasn’t told us how much they would cost but there sure isn’t any money for them under the CTBA’s proposal.

Is it exaggeration to say Pritzker has been spinning a progressive tax increase as a solution to the bulk of our problems?

Hardly. He has been emphatic that he won’t tax the middle class. How could he avoid that and deliver all he has promised except by a progressive income tax? A tax on retirement income? He said he’s against that. Broadening the sales tax base? That would be a shotgun blast ultimately born by everybody, including the middle class. Only a progressive income tax could be limited to “millionaires and billionaires” which are who he says he will target.

He has said he’d legalize marijuana and tax it, but that would only raise $300 to $700 million. And when pressed by the Crain’s editorial board on whether a progressive tax and marijuana tax suffice, he said, he didn’t know.

Hogwash. He has to know. They are not remotely close to enough. He can’t deliver what he has promised

The details on the CTBA proposal, if you are interested, are as follows: Only taxpayers earning more than $300,000 per year would get an increase over the current 4.95%, with new rates marginal rates rising to 7.5% for incomes over $300,000 and up to 9.85% for incomes over $1 million.

For folks below $300,000, the rate would stay the same but a $300 credit would be for individuals earning no more than $100,000 per year and $200,000 for couples. The credit would phase out at higher rates up to $300,000. Under an alternate plan suggested by CTBA, instead of the credit, the rate would reduce to 4.5 percent rate for the first $100,000 of income, down from today’s 4.95 percent. Under either plan, CTBA says 98% of taxpayers would get a cut.

The CTBA’s report exaggerates the impact of the $2 billion on the deficit by comparing it to cash based numbers it calls the “structural deficit” — basically, phony budget numbers. Those don’t include growing accrued liabilities, particularly pensions, which are where the real problems are. For further explanation on that see our earlier article linked here.

Would the CTBA’s plan really raise $2 billion? Probably not in the long run, where it would likely backfire. That’s because CTBA clings to its long held position that people don’t move interstate because of high taxes, so there’s no adjustment down for revenue lost by driving more people to leave. Is there even one person left in the state who still buys that? Illinois might get $2 billion initially, but more and more of those big earners would see those stiff, new rates and decide to leave when they can.

I think we all know what’s going on here. “Hurray, a tax cut for 98% of us so let’s get that constitutional amendment needed for this progressive tax proposal.” That’s what the CTBA and other proponents are hoping will be the response. After that, it will be, “Oops, wasn’t quite enough of a tax increase so….”

Make the case that a progressive tax would be fairer if you want. That’s a debate for another day. But have no doubt that stabilizing Illinois requires massive reforms to halt the exodus of our tax base and restore economic growth, not higher taxes.

The real significance of the CTBA proposal was put nicely by one of our commenters: “If there ever was a wake-up call of how deep we are in the abyss, this is it.”

*Mark Glennon is founder and executive editor of Wirepoints.

Updated 5/1/18 to clarify that the new school funding formula will consume more than $2 billion per year within six years. It calls for an additional $350 million to be added each year to school funding.

 

 

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Rick
2 years ago

So JB’s platform basically amounts to how to keep the ponzi scheme going. I suspect he will raise taxes, the damn rating agencies will fawn all over his wisdom and keep the rating non junk, the state will borrow 20 or 30 billion to fund the ponzi scheme again.they’ll pass a budget they call balanced, making sure everyone knows rauner went years with no budget and that they are master statesmen Then a massive PR campaign will convince everyone the problem is solved.

nixit
2 years ago

Wirepoints – Since JB is in no hurry to present his own plan, why not create one for him? Draw up a progressive tax plan that will pay for everything he has proposed and resolve the ongoing structural deficits. I assume you can use the same IDOR or COFGA data CTBA uses. Own the narrative, or the narrative owns you. Time for JB to get owned. There are other ways to own the progressive tax narrative. Republicans should tie this to the spending cap bill that’s been proposed (or adjust it based on a progressive rate structure). Either both happen… Read more »

JWB
2 years ago

Go ahead and open the constitution and while we’re there eliminate the diminishment clause which essentially makes politicians and govt workers a protected class of citizens.

Steve-Oh
2 years ago

Interesting debate going on….to proposed changing the state’s constitution that requires flat % income tax. And as Mark describes, it won’t actually fix the deficit problem — could even make it worse. God forbid Pritzker proposes cutting spending as Job1 and amending the Constitution to permit pension plan changes before many pension funds go to zero in X years as Job2. CTBA Report authors have some bizarre “logic”. They say IL taxation is VERY unfair because it’s regressive………then say, by definition, fairness means same % paid by everyone………then say therefore the state’s method must be changed to be progressive on… Read more »

Advocate
2 years ago

Pritzger is suggesting a policy of raising tax revenues.

A Progressive tax and a Marijuana tax are steps in the right direction of limiting tax pain while increasing revenues. THIS IS A GOOD THING FOR US.

Dont Tax you…..Dont Tax me…..Tax the guy behind the tree

Only this time tax the rich guy smoking weed behind the tree.

Mark its not surprising that when steps are taken in the right direction….you can find fault that even the helpful steps are never good enough….if they attempt to help a problem you see as already lost.

Mr. Common Sense
2 years ago
Reply to  Advocate

And what if more of those taxpayers leave?….Then What?

Illinois Entrepreneur
2 years ago
Reply to  Advocate

You don’t get it. The state income tax is only a part of the equation here. More people are concerned about the property taxes than anything else. Because this progressive tax plan does nothing to relieve the property tax burden or decrease the pension liability, all of the other taxes will get worse, also. “Millionaires and Billionaires” don’t live in $300,000 homes. They live in $1.0MM and above, which have enough taxes on them currently to get those people to notice. If those taxes double or rise even somewhere in between, because courts start forcing municipalities to increase them to… Read more »

Mark M
2 years ago
Reply to  Advocate

Advocate – a yes/no question. Do you think tax increases are exogenous to productivity and economic growth? Don’t answer it depends on the context. They either are, or their not.

Mark M
2 years ago
Reply to  Mark M

Silence as always from the Advocates of the planet. I was talking to a progression fellow alum of my so called highly ranked law school – a real traveler in the social justice world. I related to her the numbers, and some narrative, concerning Illinois. Because the abyss is so deep, I skip the progressive income tax discussion and move to hard Marxist confiscate all of the wealth of all of the top 1 percent, Venezuelan style. When informed that such a confiscation would make only a modest dent in the syatemic 300B in debt, and of course, the productive… Read more »